Workers' Comp Reforms

Medical Cost Comparisons Show Impact of Reforms

A new report from the Workers Compensation Research Institute offers insight into the potential effectiveness of recently enacted reforms.
By: | November 13, 2014

Medical payments in Illinois’ workers’ comp system have fallen since a lower fee schedule was enacted. Texas’ reforms are likely responsible for lower overall medical cost increases than other states. But hospital costs per claim in North Carolina are still higher than in most states, despite efforts to change that.

Those are among the findings in the latest state comparison report from the Workers Compensation Research Institute. The Massachusetts-based research organization looked at medical costs in 16 states and compared the jurisdictions.

The reports “provide a baseline of current medical costs and trends for policymakers and other stakeholders by documenting how medical payments per claim and their cost components compare over time with other states,” according to a statement from the organization. “The reports are indispensable for identifying where changes in treatment patterns may be occurring; where medical payments per claim or utilization may be atypical compared with other study states; or where, because of underutilization of medical services, there may be concerns about restrictions on access to care,” said Ramona Tanabe, WCRI’s deputy director and counsel.

A look at two states in particular offers insight into the potential effectiveness of recently enacted reforms.


“The 2011 reduction in the fee schedule rates for all medical services in Illinois resulted in the largest decrease in medical payments per claim of the study states,” according to the report for that state. “Between 2010 and 2012, at 12 months of experience, the average medical payment per claim with more than seven days of lost time decreased 20 percent. As a result of this large decrease in medical payments per claim, total payments per claim decreased by 12 percent in Illinois from 2010 to 2012.”

Illinois’ workers’ comp rates had been among the highest in the country before reforms were implemented. Among the changes was a 30 percent reduction in the fee schedule rates effective for services as of September 1, 2011.  It applied to medical services provided by professionals and hospitals.

Prices paid for professional services in the state decreased 27 percent between 2010 and 2012. Payments per service for hospital outpatient services dropped 16 percent. At the same time, utilization of services changed little.

“Because utilization of medical services was relatively stable between 2010 and 2012 at 12 months of experience, most of the impact on medical payments per claim in Illinois could be attributed to the decrease in the fee schedule rates,’ the report said. “From 2010 to 2012, the average medical payment per claim for many nonhospital and hospital services decreased substantially. Medical payments per claim for common services billed by nonhospital providers decreased in the range of 21 to 32 percent.”

Utilization of physical medicine — the most frequently used service in workers’ comp — was higher in Illinois than was typical. The measurement includes how often the services were provided and how many visits per claim and services per visit were billed.

“In Illinois, proportionally more injured workers received physical medicine services compared with the median study state, and when physical medicine was used, providers billed more visits per claim,” according to the report. “In Illinois, physical medicine services (all types of billing providers) accounted for 24 percent of all medical payments for claims with more than seven days of lost time in 2012. In other study states, physical medicine accounted for between 10 and 26 percent of medical payments.”

Meanwhile, the impacts of additional reforms passed in Illinois have yet to be seen. For example, final rules regarding the use of preferred provider programs were adopted in March 2013. “The impact of the reforms may become evident several years after all provisions become fully operational,” the report said.

North Carolina

Hospital outpatient charges have been among the biggest cost drivers in the North Carolina workers’ comp system and have been the targets of recent reforms. But the full effects of interim fee schedule changes in North Carolina did not take effective until 2013. Also, a bill passed last year requires hospital reimbursements to be based on Medicare methodology. However, no changes have been enacted to date, the report said.

The WCRI report does include the impact of a reduction in the hospital fee schedule on hospital payments for outpatient care, enacted in 2009. The reform reduced maximum hospital reimbursement rates for outpatient services to 79 percent of charges, from 95 percent, for most hospitals.

Despite that change, “payments for hospital care in North Carolina continued to be among the highest of the states, particularly for outpatient services,” the report said. “When compared with the median state, higher payments per service were the main reason for higher medical payments per claim for hospital outpatient care in North Carolina. A lower number of services per claim somewhat offset the higher hospital outpatient payments per service.”

Reforms enacted last year aim to reduce payments for hospital care and increase prices paid for office visits and physical medicine services. Charges for both inpatient and outpatient services were frozen at the rates set by each hospital in July 2012, as of February 2013. Those rates were subsequently cut by 15 percent for outpatient services and ambulatory surgery centers and by 10 percent for inpatient care.

Also last year, legislation passed during the final week of the legislative session requires the state Industrial Commission to develop and update the reimbursement methodology, however “no other specifics or time frames were specified in the legislation,” the report said.

Nancy Grover is the president of NMG Consulting and the Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at [email protected].

More from Risk & Insurance